Universal credit U-turn meets landlord approval

The Government’s confirmation that buy-to-let landlords will continue to be paid housing benefit directly, rather than from their tenants has been greeted with approval.

Universal Credit had been a cause for concern for many landlords, but Work and Pensions Secretary David Gauke has reassured them that in the face of mounting debt concerns for some tenants, prior arrangements where rent is paid straight to the landlord, will continue, reducing the risk of arrears.

It is believed that approximately 1.3 million housing benefit claimants have their rent paid directly to their landlords.

“Those people who already have an alternative payment arrangement, the presumption will be that will continue and the money will therefore go to the landlord rather than the tenant,”

Gauke said in a statement to the Commons.

His comments came a day after the Autumn Budget, in which the Chancellor announced that housing benefit would be paid for two weeks after an individual starts their Universal Credit claim.

“This is a welcome change and will mean that tenants who choose, can be secure that their rent has been paid and landlords have the confidence to rent out housing to those claiming benefits.

“It is good to know that ministers have clearly listened to the concerns of landlords and tenants.”

At 6% Eastern England sees biggest annual rental increases

The fastest rent rises across England and Wales, in the last year, have been in Eastern England where there has been an annual increase of 6%, bringing the average monthly rent in the region to £887 per month.

In comparison, new data from Your Move’s buy-to-let index shows that average rent for the whole of England and Wales rose by a much lower 2.4% for the same period, suggesting a slowing down of the overall price growth.

Lagging some way behind the East of England, the regions with the next highest rises in rent were the East Midlands (3.2%) and the North West (3.1%), although average rent in both of these areas was lower to begin with, at an average of £648 and £633 per month respectively.

Meanwhile, the report indicated that the North East (5.1%) and North West (5.0%) continued to deliver the highest yields, with London (3.2%) returning the lowest.

“As we approach winter, the heat has been taken out of the rental market and price growth has slowed.

“While prices in most areas have continued to rise, it has been at a slower pace than we had been used to in recent years.”

New credit score bill could assist landlords

News that the House of Lords has given the Creditworthiness Assessment Bill its second reading has been greeted with industry approval, as a move that will offer landlords greater reassurance when assessing a tenant’s likelihood of paying rent on time.

The Bill is aimed at ensuring a tenant’s rental payment record counts towards their credit rating, which could help both mortgage lenders, when a tenant subsequently looks to take on a mortgage, and landlords to make more informed decisions about prospective tenants.

The Bill, moved by the founder of Big Issue, Lord John Bird, will next move to the committee stage of the Lords and reports suggest that it is growing in support from across the House, increasing the likelihood that it will become law at some point in 2018.

Lord Bird commented:

“If you are a mortgage holder, and if you pay your mortgage on time and do not miss it too often, you will automatically have a higher credit rating, because the credit agencies will look at you and say that you are a jolly good chap, woman, student or whoever.

“But you might have been living in social housing, or in another form of rented accommodation, for one year, five years, or 10 years. There are the boxes to be ticked at the bottom of the form saying, ‘Are you a tenant?’ or ‘Are you a householder?’ and, if you are a householder, that box is ticked.

“If you are a tenant, the paper is normally thrown away, not even considered, or you will be given a very low credit rating, because they do not take into account the fact that you are paying your rent. You could be an incredibly good tenant, paying regularly for many years—or you could be a lousy mortgage holder.”

The Residential Landlords Association has backed the move to incorporate tenant rental payment into the credit scores, stating that this will help to provide landlords with a better idea of a tenant’s credit and rental payment history.

Remortgaging buy-to-let activity on the rise

The combination of low mortgage rates and ongoing house price increases have been attributed to the rise in buy-to-let remortgaging activity over the past 12 months.

That is the conclusion drawn from the results of new data released by The Mortgage Hut, which reveals that within the buy-to-let space, the amount of remortgage activity has grown by 8% in the last year.

The increase coincides with a period when the number of buy-to-let products on the market hit a ten-year high during 2017, with competition rife among lenders to offer low interest rates and incentives.

It appears that many borrowers made the decision to take advantage of offers and lower rates than they had previously been on, by remortgaging at lower loan to values.

Chris Schutrups, managing director of The Mortgage Hut, said:

“Many homeowner and landlords who have been saddled with lenders on less than competitive interest rates, or stuck on higher standard variable rates, have been able to switch to new lenders.

“Rising property prices has also had an impact on remortgage growth, especially in London and the South East. Many homeowners have chosen to reinvest in their property, by putting on an extension or refurbishing the property, rather than moving, which can be much more expensive.”

Andrew Turner, chief executive at Commercial Trust Limited, added:

“2017 has seen been a year of paradoxes for the buy-to-let industry, with low interest rates, bigger tax charges, lending reform, more products on the market and rumours of a base rate increase for the first time in a decade (which happened in November).

“Many landlords have taken stock of their property business and concluded that taking advantage of lower rates, whilst they are around, was a shrewd decision.

“Anyone thinking of remortgaging should think things through carefully and speak to a specialist if in any doubt. Commercial Trust works with a wide range of buy-to-let lenders offering mortgages and remortgage products.”

Majority of landlords report sustained demand for rental homes

The majority of landlords up and down the country report sustained demand – and growth in most areas, in the number of tenants seeking private rental accommodation.

The latest Tenant Demand Report from The Mortgage Works (TMW), carried out by BDRC Continental Landlord Panel, showed that 22% of landlords surveyed felt that rental demand had grown, while 42% had seen no change in levels. Just 17% believed demand had fallen, while 20% of respondents were unsure.

Overall, the TMW Tenant Demand Index dropped by 3 points to +5 in Q3, its lowest standing in six years. The Index is calculated by subtracting the percentage of landlords reporting that tenant demand is decreasing, from the percentage that report growth in demand.

However, seven of the twelve regions recorded a Tenant Demand Index above the +5 average, with Yorkshire & Humber recording the strongest demand growth, where landlords reported a 37% increase.

East Midlands and the North West also fared well, with one in three landlords seeing more prospective tenants applying for rental accommodation.

In Outer London, landlords reported a 28% fall in demand, while the North East experienced a 19% decline from Q2.

Landlords with the biggest portfolios were most likely to report growth in tenant demand in Q3, with 38% of landlords in this category seeing an increase in tenant demand, led by those owning 20 or more properties, a trend consistent with the Report’s information on Q2.

Landlords with buy-to-let borrowing were marginally more likely to report growth in tenant demand.

The results also revealed that the gap between landlords making a profit and those breaking even, who reported an increase in demand, narrowed during Q3.

30% of landlords could ditch agents over fees

With a ban on letting agent fees under Government discussion, new data shows that 30% of landlords in England would consider no longer using letting agents or a third party, if landlord fees increased as a consequence of such a ban on tenant fees.

A Paragon survey of over 200 experienced landlords, revealed that 73% currently use an agent or third party to let properties, with 12% saying they would ‘definitely’ be discouraged from doing so if landlord fees increased, while another 18% suggested they would ‘probably’ no longer use one.

The concerns of landlords come as a result of the Government’s plans to scrap agent letting fees for tenants which, it is feared, will lead to agencies charging landlords more – and in turn could see extra landlord costs passed on to tenants through rental increases.

Whilst almost a third of landlords would think twice about using an agent after an imposed fees ban (if this resulted in landlords incurring steeper charges), 16% of those questions said they would ‘definitely’ not be discouraged, while a further 30% would ‘probably not’ be discouraged from doing so.

Of the 27% of landlords asked, who do not currently use an agent or third party, 84% do not charge any tenant fees.

Of those that do, 60% of landlords will charge a prospective tenant for credit checking, 55% charge for an inventory, 54% will charge for referencing and 42% charge for creating a tenancy agreement. 33% of these landlords charge for other unspecified fees.

“It comes as no surprise that, at a time when various changes are impacting the profitability of buy to let, that landlords are reviewing their outgoing costs. It is the sensible thing to do.

“If fees previously charged to tenants are transferred onto landlords it may well have significant ramifications for the letting agent industry. Those organisations whose service has a clearly demonstrable value to their landlord clients will be in a stronger position, where the landlords’ margins can accommodate the cost.

“For a large proportion of landlords, renting property is not their full-time occupation, so having a lot of the administrative work and legal obligations taken out of their hands is clearly beneficial.

“However, if landlords have to operate on a leaner basis to maintain a profit, they may see letting agent fees as one way to eliminate costs.

“The vulnerability is that this may require a good deal of extra and ongoing work to ensure all administrative and legal obligations are in hand.

“It is my aim to support our landlord clients by sharing industry updates on a regular basis, to assist them in the running of their business, regardless of any decisions made as to their use of a letting agent.”

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.